Determinants of Effective Tax Rate in Thailand - Research Proposal Example

Literature Review Introduction The goal of this research is to assess the overall success and focus of Thailand's corporate tax burden, and the reforms that the government plans to implement. By doing so, the researcher hopes to provide evidence that the Thai tax system is implementing successful tax corporate reforms, thus placing its country on the correct path to overall economic reform. In order to take a closer look at this idea, several works of literature will be explored. The works of literature will help the researcher see the progression of the tax reforms, and also analyze how corporations are responding to the tax reforms being implemented. Tax changes can be analyzed, and thus a conclusion can be reached. Furthermore, the researcher has also been able to grasp a solid understanding of the tax concepts through the research, gaining important concepts like solid definitions and clear indications of the corporate tax burden and how corporations in Thailand are affected. Two important ideas will be analyzed through the literature; that of tax policy, and that of tax rules and the evolution of the corporate income tax. By taking a close look at these concepts, the researcher should be able to make an informed decision about the success of the corporate tax burden, and demonstrate the fact that the corporate tax reforms are allowing Thailand to become a more successful nation economically. Tax Policy First, when taking a close look at the corporate tax burden in Thailand, it is important to consider tax policy. Tax policy will allow the researcher to determine how Thailand's reforms are economically measuring up to other Asian nations and their economic reforms. A comparative analysis is always beneficial in allowing a researcher to see whether or not certain systems are successful, and this is also true of the corporate tax system in Thailand. There are a few helpful articles that describe this concept. In the article "Tax policy and reform in Asian countries: Thailand's perspective," Sujapongse presents a complete overview of Thailand's tax system. Within this description, the major taxes that are required by the central government, as well as the local taxes required by the local government, are discussed. Furthermore, the author also discusses more recent tax reforms, including the value added tax (VAT), which has replaced the business tax to customs tariff reform. The author also discusses current and modern day issues dealing with taxes, including the concepts of decentralization impediments, direct taxation, indirect taxation, and tax base. After this discussion, the author then proceeds to provide the researcher with a picture of the government's plans. Basically, the government is planning to use more and more technology in while handling taxes, thus allowing for Thailand to have e-government services and e-taxes. Furthermore, the "Roadmap for Tax Reform" is also discussed, and this helps to demonstrate the framework for future plans of taxation networks in Thailand. Tax issues are also discussed, and the author predicts the future of Thailand's ability to reform taxes. This author agrees with the concept of this research, and argues that Thailand is on path to effective corporate tax reform, thus benefitting the overall economy. The tax reforms, when compared to the economic success of other Asian countries, demonstrate that Thailand's economy is benefitting greatly from corporate tax reform, and doing much better when competing with other Asian nations in the corporate world. Furthermore, Thailand's focus on technology and the future also demonstrate the nation's desire to become a key player economically on a global scale. This article therefore backs up the researcher's argument that corporate tax reform is allowing Thailand to improve its economy, and thus help it become more important economically in the world. Another article that helps the researcher take a closer look at tax policy is the article "Thailand: Tax Measures to Stimulate the Economy" by Sopon Boonyarutpunth. This article gives a very sound list to the researcher along with the breakdown of the tax year 2008, and what the income tax burden for personal and corporate tax payers could expect. The overall tax reductions are discussed and listed in detail. For instance, the article discusses the benefits and reductions for personal income tax. It then, more importantly for this study, lists the reductions for corporate income taxes. According to the article, from the tax year 2008, the income tax burden for personal and corporate tax payers will be reduced as follows: (a) Personal Income Tax Low-income tax payers with annual net taxable income of not more than Baht 150,000 are now exempted from tax (previously Baht 50,000). In addition, to encourage long-term stock market investment and retirement savings, investment in long-term mutual funds (unit trusts) investing principally in listed securities (so call "LTF") and investment in retirement mutual funds ("RMF") are tax deductible up to Baht 1 million per annum (Baht 500,000 equally for LTF and RMF). This has been increased from Baht 600,000 per annum (or Baht 300,000 each). Furthermore, those paying interests on housing loans will be allowed to deduct up to Baht 100,000 from his taxable income (previously Baht 50,000) resulting in lesser tax burden. (b) Corporate Income Tax Listed companies are now taxed at reduced rates for 3 years from the first year of listing in case of the companies listed in 2008 (the newly listed companies), and for 3 years from 2008 to 2010 for the existing listed companies . Companies listed in the main stock market ("SET") are taxed at 25% for the first Baht 300 million of profits, and 30% for the remaining amount of profits. Companies listed in the small market ("MAI") are taxed at 20% for the first Baht 20 million of profits, and 30% for the remaining amount of profits. Companies are allowed to depreciate, in the fiscal year machines are purchased, up to 40% of machine costs if the machines are purchased and ready for use during 2008 to 2010. SME companies (those with paid up capital not more than Baht 5 million) are exempted from income tax on the first Baht 150,000 of annual taxable profits.(Boonyaruttpunth) This list helps to provide a very detailed overview of what companies with the corporate tax burden expected and respected for the year 2008. Therefore, for this study, it helps the researcher to understand the more modern tax rules that are taking effect, allowing the research to see if the tax revolution is starting to meet its goal of reform. By analyzing the key numbers presented in this article, the researcher is able to see that the corporate tax improvements are assisting the economy overall because the burdens are corporations are being reduced, allowing for Thailand to grow and become a more wealthy and successful nation. Thus, this article support's the researcher's argument that the corporate tax improvements are assisting Thailand's economy as a whole. Tax Rules and the Evolution of the Corporate Income Tax Second, when analyzing the corporate tax burden in Thailand, it is important to take a closer look at the tax rules and the evolution of the corporate income tax. By analyzing these concepts, the researcher can ascertain whether or not Thailand's corporate tax reforms are, indeed, effective. The article "Corporate Income Tax" is very helpful when taking a look at the tax reforms and rules in Thailand. The article gives a clear definition of the corporate income tax, which is beneficial to the research. The article defines corporate income tax as: "a direct tax levied on a juristic company or partnership which is established under Thai or foreign law and carries on business in Thailand or derive certain types of income from Thailand." (Thailand Expat Formum). Other helpful definitions are also given which can further help the researcher obtain a solid handle on the limitations of the tax terms. The article defines, for example, "Juristic company or partnership" as "a limited company, a limited partnership or a registered ordinary partnership incorporated under Thai or foreign law as well as an association and a foundation engaged in business producing revenue." Furthermore, the article explains the concept of a taxable person in detail, describing how corporate income taxes are carried out. Furthermore, the article gives a clear insight as well into evaluating what companies can be considered "Thai" and therefore fall under the corporate tax rules of Thailand. Furthermore, tax calculation is also described. The article states: "In the calculation of CIT of a company carrying on business in Thailand, it is calculated from the company's net profit on the accrual basis." (Thailand Expat Forum). The article then provides more detail on this issue, giving the researcher a clear overview of how to proceed with calculations when taking a deep look into the corporate tax culture. The methods of tax return and payment are also discussed in this article. The article states: "Thai and foreign companies carrying on business in Thailand are required to file their tax returns (Form CIT 50) within one hundred and fifty (150) days from the closing date of their accounting periods. Tax payment must be submitted together with the tax returns. Any company disposing funds representing profits out of Thailand is also required to pay tax on the sum so disposed within seven days from the disposal date (Form CIT 54)." It also provides the researcher with further detail in this regard. Thus, the researcher will be able to use this article in order to gain a solid understanding of the corporate tax burden in Thailand. Furthermore, the analysis and calculations in the article demonstrate the overall success of the corporate tax burden in Thailand, and how the reforms taking place are benefitting the economy overall. Therefore, the researcher can use this article to support the overall argument that Thailand's corporate tax initiatives are assisting with economic improvement of the country as a whole. The tax rules and the evolution of the corporate income tax is also discussed in an article from a firm in Thailand, Narrett and Associates. This group actually puts out a newsletter that covers tax changes in Thailand. The article will therefore help the researcher review some of the steps currently being taken in order to assist Thailand with its plan of tax reform. The researcher will be able to measure whether or not the goals of the tax reform are succeeding, and whether or not Thailand is progressing at an acceptable rate. According to the article: The researcher will attempt to use this material to gain an overall understanding of the progression, and whether the changes are moving too quickly or too slowly for the corporations involved. This analysis will allow the researcher to judge whether or not this tax reform in Thailand will be as successful as hoped. A current, in-depth analysis of this article has allowed the researcher to ascertain the fact that Thailand's corporate tax burden is currently assisting the economy, and helping the nation with its overall goals. Therefore, the concepts presented in this article further help to back up the researcher's initial plan of demonstrating that the corporate tax burden is assisting Thailand's economy as a whole. Conclusion Thus, the researcher's goal is to use the literature in order to gain a more complete understanding and analysis of Thailand's corporate tax burden, and prove that the corporate tax burden and new approach to taxes is benefitting Thailand's economy as a whole. The research does appear to be successful in supporting the researcher's ability to analyze the tax burden, and to take a closer look at the corporate tax revisions taking place in Thailand today. By taking a look at the literature, the researcher hopes to present a clear argument and discuss whether or not Thailand is implementing successful policies and moving at a proper pace, and whether the country can become a key player economically in the Asian markets and in the world. Through an analysis of the literature, the researcher will be able to make an informed decision. The reform currently occurring in the tax system of Thailand demonstrates the country's increasing desire to find workable monetary systems. For example, Thailand has certainly expressed a more modern goal with its desire to implement modern technology into its system of taxation. This would not only reduce human error and keep them more organized, but it would also save time for those involved in the tax process. Therefore, there is a clear desire to make things easier for all involved, and Thailand's proposed reforms and desire for modern technology in the tax system demonstrate that, as a country, it is on the right track, in the researcher's opinion. Furthermore, the articles presented above all support the researcher's key goal of proving the fact that the corporate tax burden is benefitting Thailand's economy as a whole. These benefits can greatly increase the country's economic future. Therefore, the researcher plans to utilize the above research in order to prove the effectiveness of Thailand's new policies, and argue the point that Thailand's economy is currently revising its concepts in an effective way. Works Cited Boonyaruttpunth, Sopon. "Thailand: Tax Measures to Stimulate the Economy. Sopon Boonyaruttpunth". 22 June 2009. http://www.miap.com/membernews/Thailand%20-%20Tax%20Measures%20to%20Stimulate%20Economy.PDF Narrett and Associates. Legal and Tax Services. http://www.naritlaw.com/Resources/Newsletter%20No%2019%20Edition%20June%202008.pdf. June 2008. Sujjapongse, Somchai. "Tax policy and reform in Asian countries: Thailand's perspective." Journal of Asian Economics. Volume 16, Issue 5. December 2005: 1012-1028. Thailand Expat Forum. "Corporate Income Tax." 24 Dec 2006. 22 June 2009. http://www.thaivisa.com/corporate_income_tax.0.html Read More